Many people who have lost their jobs or saw their hours reduced due to the Covid pandemic have been receiving unemployment. In conjunction with state unemployment benefits, individuals have been able to receive an additional $600/month from the federal government set to end next week. While helpful during troubled times, unemployment checks could cause some tax pain when you file next tax season.
The problem with unemployment checks is that the state does not automatically withhold taxes. These payments ARE taxable in most states. Notable exceptions are California, Montana, New Jersey, Pennsylvania, and Virginia. Regardless, benefits are federally taxable. If you have no withholdings against your weekly benefit, you may come up owing during tax season. Even if you do withhold, the amount withheld may be too low. Massachusetts, if asked, will withhold 10% for federal and 5.05% for Massachusetts. This may be enough, but for many, it may not.
If you have not been withholding, it may be best to start saving for what you will owe in taxes on your unemployment benefits if possible. You can also send in an estimate toward this tax to avoid owing next year. If you need help determining what your tax obligation may be, give us a call. In any case, be sure to plan ahead and avoid an unpleasant surprise.
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